Returns to Education in the Albanian Labor Market

Abstract

The issue of private returns to education has received much attention in the literature and there are many studies for various countries on the issue. Nonetheless, less is known of the issue in developing countries and these studies are missing for Albania where little is known regarding private returns to education. A major characteristic of labor market in Albania is the disparity between males and females. It is well documented that women in the labor market lag behind in terms of employment and wages; they have higher unemployment rates, higher inactivity rates which translate into lower labor force participation rates, mainly due to household responsibilities. Understanding returns to education by sex, region and sector in Albania would help answer questions regarding parent’s decisions on children’s education as well as the allocation of the workforce in different sectors of the economy by sex and regionally. Higher returns to education are associated with higher investment of parents in children’s education. This is especially important for females and females in rural areas where culture and societal norms do not always envision females as participants in the labor market. In fact, the vast majority of females in the rural areas are in unpaid family labor. Greater human capital accumulation, employment and wages improve individual’s outcome and have a greater impact for female’s outcomes. Better position of females in the labor market and higher earnings also mean a better position and higher bargaining power of females within the household. This paper estimates returns to education by sex, region, and sector in Albania using the 2012 Living Standard Measurement Survey Data. The econometric model used in this paper to estimate private returns to education is based on Mincer’s (1974) human capital earning function. To correct for self-selection bias a two-step estimation following Casero and Seshan (2006) is estimated for each sector. The study shows that there are clear pay offs to female education. Estimation results show that females have higher returns to education overall and across regions and sectors. Returns to education for females are higher in the private sector compared to the public sector. The highest returns to education for females are in the service sector. Higher returns to education for women may improve their position in the labor market and should serve as incentives for increased labor force participation and paid employment especially for women in the rural areas. On the other hand, it also shows that investing in education by the government is a worthy investment that brings back rewards and consequently investment in women’s education should continue and it should be increased providing more and better quality education. Promoting women’s entry into the private sector is important given women’s already high participation in the public sector, and the generally limited capacity of the sector to absorb a large number of workers. The higher returns of education for women in the private sector should also serve as a policy incentive to direct women’s participation in the private sector as to reap the rewards to education that this sector offers.